Staying Insured While Investing

How to enjoy dual benefits of insurance and investments?

Investments serve two purposes to help us achieve our goals - they help us save money for our needs and also give us a way to increase the value of our savings. Insurance Policies add a third dimension to our investments – security!

Unit-linked Term insurance plans (ULIPs) give you access to both –insurance and investment. These plans allow you to enjoy a life cover and the opportunity to earn market-linked returns.

A part of the premium you pay goes towards providing the insurance cover, while the balance, after deducting the distribution and management charges, gets invested as per your choice.

Investing as per your risk appetite

The investment proportion of your premium gets invested into different fund options managed by professional fund managers. These fund options, in turn, invest the premium amount in varying proportions of various financial instruments like equities, debt and money market instruments.All these investment options carry different levels of risk and return potential. Generally higher the risk, higher would be the return potential. While equities involve the highest investment risk, they also tend to give higher returns over the long run.

You can decide how much amount you wish to allocate in the fund of your choice and also enjoy the freedom to switch between the fund options any time.

With ULIPs, you can benefit from:

A wide choice of investment options:

ULIPs give you a range of investment options. You can choose to invest your money into pure equity or debt funds or a combination of both, based on your preference and risk profile.

Systematic investments:

ULIPs encourage investments in a disciplined manner. Investing regularly in small doses over a period of time lets you gain from the benefit of rupee cost averaging, which evens out the highs and lows of a fluctuating market.

Investor B invests the same amount of Rs 90,000 through periodic investments of Rs 15,000 every month over a period of six months and purchases the same equity share at different rates. At the end of the six-month period, while both the investors had invested the same amount, Investor B has been able to purchase more units.

In this way, rupee cost averaging could help you lower the average purchase costs and make the most of price fluctuations depending upon the prevailing market conditions.

Flexibility:

ULIPs let you choose the life cover and the desired premium amount, in most cases. You can also switch between various fund options with ease.

Transparency

You know how and where your money is invested and can even track your portfolio performance. You are kept informed of all the applicable charges as well as your net investment amount.

Changed for good:

In 2013, the Insurance Regulatory and Development Authority of India (IRDAI) introduced sweeping changes in the ULIP structure adding more value to it, resulting in improved benefits for the investor:

Get more investible surplus

ULIPs come with a low charge structure, which implies that a greater portion of the premium is invested to give you fruitful returns.

Get minimum guaranteed returns on pension products:

Your lifetime savings will now get enhanced protection from market fluctuations, as pension ULIPs will now ensure a minimum guaranteed return on maturity.

Enjoy a higher risk cover:

All ULIPs other than pension and annuity products will now provide a minimum life cover or health cover, higher than what is being offered presently. For pension and annuity ULIPs, life/health cover will be provided as riders. Thus, you can now enjoy higher cover to tide over life’s uncertainties.

Enjoy a longer investment period: The new ULIPs have a lock-in period of 5 years. Besides, all ULIPs (excluding single premium ULIPs) will now have a premium paying term of at least 5 years. This way you will stay invested for a longer time frame. Investing small amounts at regular intervals over a longer period would help you build a bigger corpus.

Even distribution of charges: Charges on ULIPS are evenly distributed during the lock-in period and you would be paying equal amounts throughout the lock-in period.

Liquidity

Anytime after completion of 5 years of the policy, if you are faced with an emergency, you can choose to surrender your policy without any additional costs or charges.

Thanks to these reforms, Unit Linked Insurance Plans have emerged as a vital long-term protection and savings vehicle, with enhanced customer value.